Freight first

MarAd’s acting chief says “cargo will create a demand for ships, and ships create a demand for mariners.”

A year after taking charge of the U.S. Maritime Administration, Paul “Chip” Jaenichen sounded the alarm about the future of the U.S. Merchant Marine.
Responding to questions during a hearing in March before the House Subcommittee on Coast Guard and Maritime Transportation on MarAd’s budget, Jaenichen declared that the maritime industry is “at the precipice of potential failure and I am concerned about that, primarily because of the decrease in overall cargoes.”
Jaenichen moved up from deputy U.S. maritime administrator to become acting U.S. maritime administrator last June, following the resignation of David Matsuda who had held the job since 2010.
As of early April the Senate had yet to vote on Jaenichen’s confirmation, but in an interview with American Shipper, he noted that since he was already deputy administrator when Matsuda left, “that gives me more opportunity to continue to press ahead on what my agenda would be as a permanent administrator.
“We’re going to focus on cargo. Cargo is the lifeblood for the industry… whether that is government-impelled cargo, or other cargoes that the U.S.-flag ships can carry,” he said during the interview.
“We have to make sure we enforce the cargo preference laws as they currently are. We have a responsibility from the 2009 National Defense Authorization Act to generate rulemakings for greater enforcement and that is a priority for the department,” he said.
Jaenichen has been “a refreshing breeze,” said Richard Berkowitz, director of operations at the Transportation Institute, a management-funded group that represents companies that employ members of the Seafarers International Union.
Jaenichen came to MarAd after 30 years in the Navy as a nuclear-trained submarine officer. His final assignment was as deputy chief of legislative affairs for the Navy Department from October 2010 to April 2012.
“Coming out of the sea services, he gets the importance of the U.S. flag and understands the role that MarAd plays in supporting its goals. He is a policy guy with great leadership skills,” Berkowitz said.
“If you have cargo, cargo will create a demand for ships, and ships create a demand for mariners,” Jaenichen said. “Those mariner jobs are important.”
There are about 40,000 mariners in the United States, but about 30,000 serve onboard vessels that work at near-shore or inland waterways. It requires a different set of skills, he noted, to operate a harbor tug versus sailing a ship to Africa.
In a letter he wrote last fall to William Fraser, head of the U.S. Transportation Command, Jaenichen noted after consulting with U.S. maritime unions there were about 4,000 licensed mariners and 7,600 unlicensed mariners for deep-sea vessels.
That may be sufficient to meet the initial “sealift surge,” but if the government had to activate all its government reserve sealift ships, Jaenichen said “we’d only be able to do that sustained for about six to eight months.
“Now have we ever fully activated our Ready Reserve Force for that long? The answer is no. We’ve activated significant portions of it in the past, but we’ve never done a full activation,” he added.
Jaenichen said he’s also concerned about the demographics of U.S. seafarers. The maritime workforce is aging.
“We’ve got a lot of guys at the young end, guys who graduated recently from a state maritime academy or the U.S. Merchant Marine Academy. And then we have folks that have been sailing for a long time. In the middle, there’s a little bit of what we call ‘the trough’ in terms of the number of people. It is not an even mix across age and demographics, so that’s one of the things we need to take a very close look at,” he explained.
Joshua Shapiro, a vice president at the shipping company Liberty Maritime in Lake Success, N.Y., also praised Jaenichen and his “focus on not only maintaining and growing a vibrant merchant marine, but also supporting us with cargo initiatives, which is the key to keeping the fleet.”
Jaenichen told Congress at a hearing in March that his concern about the U.S.-flag merchant marine is based on a decrease in overall cargo, noting 80 percent of the government-impelled cargo carried by U.S.-flag carriers is Defense Department cargo which is decreasing because of the end of U.S. military action in Iraq and Afghanistan.
“I am concerned that those cargoes currently are not there and are going down rapidly, which means that the U.S.-flag fleet has to be able to have commercial cargo opportunities. In this particular market, where there is an overabundance of capacity, we have to structure or take action essentially as an administration, as a Congress, to put the correct policies, regulations and statutes in place to support the maritime industry, otherwise, it will potentially cease to exist,” Jaenichen said.
“The potential risk is that we lose control of our supply chain,” he warned, noting that the nation’s ports are called by about 60,000 vessels a year and only about 2 percent of that cargo moves on U.S. vessels.
In January, Jaenichen convened a three-day National Maritime Strategy Symposium in Washington with calls to expand the U.S.-flag fleet serving international trade. This month, on May 6, the agency will convene a second symposium that will focus on U.S. ports, domestic shipping, and shipyards.
While cargo moving on cabotage routes or the so-called “Jones Act” trade—trade between two points in the United States—must move on ships registered and built in the United States and be crewed by U.S. seafarers, ships moving cargo to and from international destinations can be built overseas, and operators of U.S.-flag vessels must compete with those registered in foreign countries with foreign seafarers who are paid a fraction of what U.S. seafarers earn.
To help U.S. firms compete in international trade and ensure the U.S. military has a source of sealift, the government has created several programs to help U.S. shipping companies.
One is the Maritime Security Program (MSP), which provides a $3.1 million subsidy to the operators of 60 U.S.-flag ships engaged in foreign trade. Participating operators are required to make their ships and commercial transportation resources available upon request by the defense secretary during times of war or national emergency.
A second program called the Voluntary Intermodal Sealift Agreement (VISA) gives the Defense Department “assured access” to ships, equipment, terminal facilities and intermodal management services in an emergency. In exchange, the program’s participants (which include the MSP carriers) get priority preference when bidding on Defense Department cargo during peacetime.
MSP carriers were always going to be dependent on not only regular commercial cargo, but peacetime cargo from the military or food aid cargo under the “Food for Peace” program, as well as the subsidy, said James Caponiti, president of the American Maritime Congress, a group representing shipping companies that employ members of the Marine Engineers' Beneficial Association.
“What is different today than when we instituted the program in fiscal 1997 is that we have a much smaller military footprint overseas than we did in those days, which means the amount of peacetime cargo available for the MSP fleet is much smaller,” Caponiti said.
Jaenichen said at the height of the wars in Afghanistan and Iraq, the military supplied about 85 to 90 percent of government-impelled cargo. Historically, he said the military provided 75 percent of government-impelled cargo, while the other 25 percent came from cargo that must be transported on U.S. vessels under the rules of the U.S. Export-Import Bank and other agencies. At the same time, he noted U.S.-flag carriers, like all shipping companies, face a tough market because of the global economic slowdown and huge increase in shipping capacity.
With a reduction in military cargo, “we need to take a look at adjusting one of the other two areas—either we increase the opportunity for commercial cargo or potentially you increase the stipend rate,” Jaenichen told Congress during the budget hearing.
He said he’s “been consulted by a couple of companies who have told us right now that it is not working in terms of being able to make it feasible financially and that is going to create problems, so I think we are going to have to take a look at what we can do going forward with regard to that program.”
Maersk Line Ltd., the largest participant in MSP, said in a statement, "as a U.S. flag carrier and MSP participant, we appreciate that Mr. Jaenichen raised MSP budgeting with members of the House."
Jaenichen said MarAd is attempting to improve compliance with regulations like those for projects funded by the Ex-Im Bank that impose requirements for moving cargo on U.S.-flag vessels.
“Enforcement is really tied to the rule,” he said. “What we’re trying to do right now is we are educating, we’re talking to government shippers, contractors, freight forwarders, to make sure they understand what the requirements are and then we’re trying to identify areas where there’s potential leakage in terms of what should be going on ocean carriage by U.S. flag that currently is not going today.”
Some members of Congress are seeking to restore a requirement that 75 percent of food aid exports be moved on U.S.-flag ships. The House unanimously approved the 2014 Coast Guard and Maritime Transportation Act in April that included a provision to restore U.S.-flag requirements for the Food for Peace program. The 2012 Surface Transportation Authorization had cut that requirement from 75 to 50 percent.
Shapiro said that change had caused Liberty, for example, to reduce the size of its U.S.-flag dry bulk fleet from six to three ships.
Rep. Duncan Hunter, R-Calif., complained during a hearing earlier this year that an Obama administration plan to restructure the Food for Peace program to allow local sourcing of food aid “will eliminate a vital program for our farmers, put U.S. mariners out of work, and undermine our national security by reducing the domestic sealift capacity on which our military depends.”
Jaenichen said allowing up to 25 percent of food aid to be done by “local purchase” is likely to affect four to six ships and the jobs of 200 to 275 mariner jobs.
In the 2014 Coast Guard and Maritime Transportation Act, the House also directs the Government Accountability Office to report on the economic impacts of exporting liquefied natural gas on U.S.-flagged and built vessels.
Rep. John Garamendi, D-Calif., vowed as the “legislation moves forward, I will continue to advocate for additional measures to create more American jobs. This includes requiring that liquefied natural gas (LNG) is exported on U.S.-flagged ships that are built in America and sailed by American crews,” he said.
Garamendi said if such a requirement is created, LNG export terminals already approved by the federal government would create the need for 100 LNG tankers to be built in the United States and crewed by U.S. citizens.
“We think the energy sector is an area where the U.S. flag potentially has opportunities to develop cargo,” Jaenichen said. “It’s an area that needs to be looked at and we fully support anything that is done to increase the cargo that can go on U.S.-flag vessels.”
He said there are both supporters and opponents of requiring cargo to be moved on U.S.-flag vessels, but that creating such a requirement could be challenging under the General Agreements for Tariffs and Trade.
For example, the requirement that crude oil moving through the Trans-Alaska Pipeline be carried on U.S.-flag ships would not be permitted today, “because it would run afoul of GATT,” he said.
MarAd is also responsible for maintaining 46 ships in the Ready Reserve Force, vessels that are stationed around the country in “five-day readiness” status, with the exception of one ship, an offshore petroleum distribution vessel that is kept in 10-days readiness. Thirty-five of those ships are roll-on/roll-off ships, while the others are crane, heavylift or barge-carrying vessels and aviation repair ships.
Two of the roll-on/roll-off ships have been activated by the military.
The Cape Ray is assisting in the UN program to destroy Syrian chemical weapons. The ship has loaded two “field-deployable hydrolysis units” used to neutralize chemicals that were in the Syrian stockpile.
“We have made extensive modifications to the vessel. Essentially the entire main trailer deck is now an air lock to make sure everything stays contained” and modules were put on the upper deck to accommodate an additional 100 persons in addition to the crew, Jaenichen said.
Another ro/ro, Cape Race, has been activated to transport some Osprey aircraft from Djibouti.
During the budget hearing Rep. Elijah Cummings, D-Md., cited his concern that the U.S.-flag ocean-going fleet significantly shrank in size from 857 ships in 1975. MarAd said at the beginning of this year there were about 179 privately-owned ocean-going ships, of which 89 operate in foreign trades.
“What can we do to help our fleet to meet the challenge that the loss of cargo poses? It seems to me that we are sort of standing over somebody who we could save and we are saying, 'what the hell, let’s just wait and wait and wait and every second that passes they march closer to their death,'” Cummings said.